UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 4, 1998
----------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from________________________to________________________
Commission file number 1-6853
SHAW INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1032521
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
616 E. WALNUT AVENUE, DALTON, GEORGIA 30720
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code (706) 278-3812
- --------------------------------------------------------------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check |X|whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| . No ______.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: August 7, 1998 - 122,577,554 shares
<PAGE>
SHAW INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBERS
--------------------- ------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - July 4, 1998
and January 3, 1998 3-4
Condensed Consolidated Statements of Income and Retained
Earnings - For the Three Months Ended
July 4, 1998 and June 28, 1997 5
Condensed Consolidated Statements of Income and Retained
Earnings - For the Six Months Ended
July 4, 1998 and June 28, 1997 6
Condensed Consolidated Statements of Cash Flow -
For the Six Months Ended July 4, 1998
and June 28, 1997 7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART 1 - ITEM ONE - FINANCIAL INFORMATION
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS July 4, January 3,
1998 1998
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents ................... $ 8,557 $ 43,571
----------- -----------
Accounts receivable, less
allowance for doubtful accounts and
discounts of $18,522 and $16,283 .......... 397,870 374,516
----------- -----------
Inventories -
Raw materials ............................. 259,104 235,820
Work-in-process ........................... 25,689 23,584
Finished goods ............................ 270,941 270,655
----------- -----------
555,734 530,059
----------- -----------
Other current assets ........................ 120,675 118,267
----------- -----------
TOTAL CURRENT ASSETS .......... 1,082,836 1,066,413
----------- -----------
PROPERTY, PLANT AND EQUIPMENT,
At cost:
Land and land improvements .................. 25,885 27,827
Buildings and leasehold improvements ........ 282,834 299,090
Machinery and equipment ..................... 964,900 987,561
Construction in progress .................... 78,664 69,345
----------- -----------
1,352,283 1,383,823
Less - Accumulated depreciation and
amortization ......................... (761,755) (759,444)
----------- -----------
590,528 624,379
----------- -----------
GOODWILL, net ................................ 128,833 236,209
----------- -----------
INVESTMENT IN JOINT VENTURE .................. 20,703 21,269
----------- -----------
OTHER ASSETS ................................. 20,011 19,344
----------- -----------
TOTAL ASSETS .................. $ 1,842,911 $ 1,967,614
=========== ===========
3
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
July 4, January 3,
1998 1998
----------- -----------
(UNAUDITED)
CURRENT LIABILITIES:
Notes payable ............................... $ 8 $ 10
Current maturities of long-term debt ........ 296 2,752
Accounts payable ............................ 161,758 161,964
Accrued liabilities ......................... 209,586 160,728
----------- -----------
TOTAL CURRENT LIABILITIES .............. 371,648 325,454
----------- -----------
LONG-TERM DEBT, less current maturities ...... 932,974 930,424
----------- -----------
DEFERRED INCOME TAXES ........................ 66,759 61,689
----------- -----------
OTHER LIABILITIES ............................ 12,261 12,513
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock, no par, $1.11 stated value,
authorized 500,000,000 shares; issued and
outstanding: 132,455,515 shares at
July 4, 1998 and 131,118,065 shares
at January 3, 1998 ......................... 147,027 145,542
Paid-in capital ............................. 68,104 54,745
Cumulative translation adjustment ........... (4,319) (620)
Retained earnings ........................... 382,317 437,867
----------- -----------
593,129 637,534
Less - Treasury stock, at cost (10,622,361
shares at July 4, 1998) .............. 133,860 --
----------- -----------
TOTAL SHAREHOLDERS' INVESTMENT ......... 459,269 637,534
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT ........................... $ 1,842,911 $ 1,967,614
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
July 4, June 28,
1998 1997
----------- -----------
NET SALES .................................... $ 873,149 $ 915,232
COSTS AND EXPENSES:
Cost of sales .............................. 632,967 678,240
Selling, general and administrative ........ 168,259 184,093
Charge to record loss on sale of
residential retail operations, store
closing costs and writedown of certain ... 141,526 --
assets
Pre-opening expenses, retail operations .... 23 1,183
Interest expense, net ...................... 15,581 15,342
Other expense(income), net ................. 833 (5,619)
----------- -----------
(LOSS)INCOME BEFORE INCOME TAXES ............. (86,040) 41,993
(BENEFIT) PROVISION FOR INCOME TAXES ......... (20,776) 17,398
----------- -----------
(LOSS)INCOME BEFORE EQUITY IN INCOME OF
JOINT VENTURE .............................. (65,264) 24,595
EQUITY IN INCOME OF JOINT VENTURE ............ 43 636
----------- -----------
NET (LOSS) INCOME ............................ $ (65,221) $ 25,231
=========== ===========
DIVIDENDS PAID PER COMMON SHARE .............. $ 0.0 $ 0.075
=========== ===========
(LOSS)EARNINGS PER COMMON SHARE:
Basic ...................................... $ (0.54) $ 0.19
=========== ===========
Diluted .................................... $ (0.54) $ 0.19
=========== ===========
RETAINED EARNINGS:
Beginning of period ........................ $ 447,768 $ 449,704
Add - net (loss) income .................... (65,221) 25,231
(Deduct) - dividends paid .................. -- (10,038)
(Deduct) - purchase of common stock ........ (230) --
----------- -----------
End of period .............................. $ 382,317 $ 464,897
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
July 4, June 28,
1998 1997
----------- -----------
NET SALES .................................... $ 1,738,134 $ 1,723,885
COSTS AND EXPENSES:
Cost of sales .............................. 1,279,081 1,286,803
Selling, general and administrative ........ 336,407 351,490
Charge to record loss on sale of
residential retail operations, store
closing costs and writedown of certain ... 141,526 --
assets
Pre-opening expenses, retail operations .... 232 2,943
Interest expense, net ...................... 30,808 29,070
Other expense(income), net ................. 3,466 (6,103)
----------- -----------
(LOSS)INCOME BEFORE INCOME TAXES ............. (53,386) 59,682
(BENEFIT) PROVISION FOR INCOME TAXES ......... (7,408) 25,022
----------- -----------
(LOSS)INCOME BEFORE EQUITY IN INCOME OF
JOINT VENTURE .............................. (45,978) 34,660
EQUITY IN INCOME OF JOINT VENTURE ............ 262 1,319
----------- -----------
NET (LOSS) INCOME ............................ $ (45,716) $ 35,979
=========== ===========
DIVIDENDS PAID PER COMMON SHARE .............. $ 0.075 $ 0.15
=========== ===========
(LOSS)EARNINGS PER COMMON SHARE:
Basic ...................................... $ (0.37) $ 0.27
=========== ===========
Diluted .................................... $ (0.37) $ 0.27
=========== ===========
RETAINED EARNINGS:
Beginning of period ........................ $ 437,867 $ 448,939
Add - net (loss) income .................... (45,716) 35,979
(Deduct) - dividends paid .................. (9,834) (20,021)
----------- -----------
End of period .............................. $ 382,317 $ 464,897
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOW SIX MONTHS SIX MONTHS
(UNAUDITED AND IN THOUSANDS) ENDED ENDED
July 4, June 28,
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net income .................................. $ (45,716) $ 35,979
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ............. 40,597 46,213
Provision for doubtful accounts ........... 5,056 4,435
Deferred income taxes ..................... 6,010 2,065
Charge to record loss on sale of
residential retail operations, store
closing costs and writedown of certain .. (98,203) --
assets
Other, net ................................ (5,692) (27,145)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable .................. (64,538) (34,671)
Inventories .......................... (69,548) (52,234)
Other current assets ................. 36,633 3,591
Accounts payable ..................... 18,298 17,695
Accrued liabilities .................. 37,801 7,723
----------- -----------
Total adjustments .................. 102,823 (32,328)
----------- -----------
Net cash provided (used) by operating
Activities ............................... 57,107 (3,651)
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment .. (34,412) (39,416)
Disposal of U.K. assets ..................... (16,566) --
Acquisitions of business assets ............. -- (27,709)
----------- -----------
Net cash used in investing activities ..... (50,978) (67,125)
----------- -----------
FINANCING ACTIVITIES:
Decrease in notes payable ................... (2) (38,996)
Increase in long-term debt, net of payments . 87,710 87,230
Dividends paid .............................. (9,834) (20,021)
Purchase of common stock held in treasury ... (133,860) --
Proceeds from exercise of stock options ..... 14,843 229
----------- -----------
Net cash (used)provided by financing
Activities .............................. (41,143) 28,442
----------- -----------
NET (DECREASE)IN CASH AND CASH
EQUIVALENTS ................................ (35,014) (35,032)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .................................. 43,571 49,581
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ... $ 8,557 $ 14,549
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
---------------------------------------------------------------
1. Basis of Presentation
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the financial statements and related notes contained in the
Company's 1997 Annual Report on Form 10-K. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the Company's financial position, results of operations and cash
flow at the dates and for the periods presented. Interim results of operations
are not necessarily indicative of the results to be expected for a full year.
2. Inventories
The Company uses the last-in, first-out (LIFO) method of valuing
substantially all of its domestic inventories. If LIFO inventories were valued
at current costs, the inventories would have been $13,734,000 and $11,707,000
lower at July 4, 1998 and January 3, 1998, respectively. Certain of the
Company's finished goods inventories, representing 24 percent of total
inventories, are valued at the lower of first-in, first-out (FIFO) cost or
market.
3. Long-term Debt
In March 1998, the Company completed a new domestic revolving credit
facility which provides for borrowings of up to $1.0 billion and expires in
March 2003. The borrowings bear interest at variable rates equal to the London
Interbank Offered Rate (LIBOR) plus margins ranging from 0.220 percent to 0.750
percent, depending on the Company's consolidated funded debt to earnings ratio,
as defined. Fees associated with the domestic revolving credit agreement include
a facility fee on the committed amount ranging from 0.10 percent to 0.25
percent. The LIBOR-based rate at July 4, 1998 was 6.24 percent and borrowings
outstanding under this new facility totaled $878,000,000.
4. Sale of Residential Retail Operations, Store Closing Costs and Writedown of
Certain Assets
On June 23, 1998, the Company agreed to sell substantially all of its
residential retail operations to The Maxim Group, Inc. for consideration valued
at approximately $115,000,000, including 3.15 million shares of Maxim stock, $25
million in cash and a one-year note in the principal amount of approximately $18
million. For the quarter ended July 4, 1998, the Company incurred a charge to
record the loss on sale of the residential retail operations, store closing
costs and writedown of certain assets of $141,526,000 ($98,203,000, net of tax
benefit, or $.81 per share on a basic and diluted basis) related to the exiting
of its residential retail business. The sale was completed effective August 9,
1998.
5. Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share," effective January
3, 1998. Earnings per share for the quarter and six month periods ended July 4,
1998 and June 28, 1997 have been computed based upon the weighted average shares
and dilutive potential common shares outstanding. The net income amounts
presented in the accompanying condensed consolidated statements of income
represent amounts available or related to shareholders.
8
<PAGE>
The following table reconciles the denominator of the basic and diluted
earnings per share computations:
Three Months Ended
July 4, 1998 June 28, 1997
- ---------------------------------------------- ----------- -----------
Weighted average common shares ............... 121,034,349 133,766,596
Dilutive incremental shares from assumed
conversions of options under 1987 and
1992 incentive stock option plans ........ -- 14,533
- ---------------------------------------------- ----------- -----------
Weighted average common shares and
dilutive potential common shares ......... 121,034,349 133,581,129
- ---------------------------------------------- ----------- -----------
Six Months Ended
July 4, 1998 June 28, 1997
- ---------------------------------------------- ----------- -----------
Weighted average common shares ............... 124,968,192 133,404,107
Dilutive incremental shares from assumed
conversions of options under 1987 and
1992 incentive stock option plans ........ -- 210,502
- ---------------------------------------------- ----------- -----------
Weighted average common shares and
dilutive potential common shares ......... 124,968,192 133,614,609
- ---------------------------------------------- ----------- -----------
6. Derivative Financial Instruments
The Company uses interest rate swaps to fix interest rates on current and
anticipated borrowings to reduce exposure to interest rate fluctuations. Under
existing accounting literature, these interest rate swaps are accounted for as
hedging activities. The net cash paid or received on interest rate hedges is
included in interest expense. The Company may also employ foreign currency
exchange contracts when, in the normal course of business, they are determined
to effectively manage and reduce foreign currency exchange fluctuation risk. At
July 4, 1998, the Company had no foreign currency exchange contracts
outstanding. The Company does not enter into financial derivatives for
speculative or trading purposes.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133 is
effective, and the Company expects to adopt this new standard, in the Company's
first quarter of fiscal 2000. The Company's management has not determined the
impact this new statement will have on the financial statements.
7. Comprehensive Income
Effective January 4, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires additional disclosure of amounts
comprising comprehensive income. The Company has other comprehensive income in
the form of cumulative translation adjustments which resulted in total
comprehensive (loss) income of $(67,124,000) and $23,574,000 for the quarters
ended July 4, 1998 and June 28, 1997, respectively, and total comprehensive
(loss) income of ($49,415,000) and $34,942,000 for the six months ended July 4,
1998 and June 28, 1997, respectively.
9
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
ITEM TWO-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
The Company's business, as well as the U.S. carpet industry in general,
is cyclical in nature and is significantly affected by general economic
conditions. The level of domestic carpet sales tends to reflect fluctuations in
consumer spending for durable goods and, to a lesser extent, fluctuations in
interest rates and new housing starts. The Company's international operations
are also impacted by the economic climates in the markets in which they operate
(primarily Australia and Mexico). During the first six months of 1998, demand
for the Company's domestic wholesale manufacturing business improved
substantially over that of the first six months of 1997, while sales prices were
comparable and margins substantially improved. The Australian market improved in
late 1997 and the first six months of 1998, and margins improved slightly in the
first six months of 1998 compared to the first six months of 1997, while sales
prices substantially declined.
During the six months ended July 4, 1998 net sales for the Company's
residential retail and commercial contractor business totaled $464.4 million
compared to $437.1 million for the six months ended June 28,1997. In June 1998,
the Company agreed to sell substantially all of its residential retail
operations to The Maxim Group, Inc. for consideration valued at approximately
$115 million. For the quarter ended July 4, 1998, the Company recorded
nonrecurring charges for the loss on sale of its residential retail operations,
store closing costs, and the writedown of certain assets of $141.5 million
($98.2 million, net of tax benefit) resulting from exiting substantially all of
its residential retail business. At July 4, 1998, the Company has 350
residential and commercial contractor locations throughout the United States
including the residential stores scheduled to be sold or closed subsequent to
the end of the quarter.
LIQUIDITY AND CAPITAL RESOURCES
At July 4, 1998, the Company had working capital of $711.2 million, a
decrease of $29.8 million, or 4.0 percent, from the working capital of $741.0
million at January 3, 1998. Cash and cash equivalents decreased $35.0 million
from $43.6 million at January 3, 1998 to $8.6 million at July 4, 1998. The
Company's operations generated cash flow of $57.1 million in the first six
months of 1998, principally from depreciation and amortization of $40.6 million,
provision for doubtful accounts of $5.1 million, a charge to record the loss on
sale of its residential retail operations, store closing costs and writedown of
certain assets of $98.2 million, a decrease in other current assets of $36.6
million and an increase in accounts payable and accrued liabilities of $56.1
million, offset in part by a net loss of $45.6 million and increases in accounts
receivable and inventories of $134.1 million. In the first six months of 1997,
cash generated from operating activities was $3.7 million primarily as a result
net income of $36.0 million adjusted for depreciation and amortization of $46.2
million, provision for doubtful accounts of $4.4 million and deferred income
taxes of $2.1 million, offset in part by increases in inventories and accounts
receivable of $52.2 million and $34.7 million, respectively. In the first six
months of 1998, the Company's investing activities included additions to
property, plant and equipment, net of retirements, of $34.4 million and the
liquidation of Carpets International, Plc (U.K.) assets, net of liabilities, of
$16.6 million compared to additions to property, plant and equipment, net of
retirements, of $39.4 million and acquisitions of business assets of $29.9
million in the first six months of 1997. Cash used by financing activities for
the first six months of 1998 of $41.1 million included the purchase of common
stock of $133.9 million and the payment of cash dividends of $9.8 million,
offset in part by an increase in long-term borrowings, net of payments, of $87.7
million and proceeds from the exercise of stock options of $14.8 million. Cash
flow provided by financing activities for the first six months of 1997 of $28.4
million included an increase in long-term borrowings, net of payments, of $87.2
million and the exercise of stock options of $.2 million, offset in part by cash
dividends of $20.0 million and payments on notes payable of $39.0 million.
The Company has continued to maintain a strong working capital
position. Effective use of capital and the Company's ability to generate cash
flow from operations has enabled it to invest in technologies which reduce
production costs, generate operating margins that have historically exceeded
industry averages and implement its growth strategy.
Capital expenditures for property, plant and equipment, net of
retirements necessary to maintain the Company's facilities in a modern
state-of-the-art condition and expand its production capacity were $34.4 million
for the six months ended July 4, 1998. Management anticipates total capital
expenditures and capitalized lease obligations of approximately $35 million for
the remainder of 1998 to expand and upgrade its manufacturing and distribution
equipment to meet anticipated increases in sales volume, to improve efficiency
and to upgrade its current commercial contract distribution operations.
10
<PAGE>
The Company's primary source of financing is an unsecured revolving
credit facility with a banking syndicate which provides for borrowings of up to
$1.0 billion and expires in March 2003. Interest on borrowings under this
facility is currently based on LIBOR, and was 6.24 percent at July 4, 1998. At
July 4, 1998, borrowings outstanding under this credit facility were $878.0
million.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133 is
effective, and the Company expects to adopt this new standard, in the Company's
first quarter of fiscal 2000. The Company's management has not determined the
impact this new statement will have on the financial statements.
RESULTS OF OPERATIONS
Three Months Ended July 4, 1998 Compared to Three Months Ended June 28, 1997
Net sales decreased $42.1 million, or 4.6 percent, to $873.1 million in
the second quarter of 1998. The decrease was primarily attributable to $49.1
million in the second quarter of 1997 related to the Company's U.K. operations
which were sold at the close of the first quarter of 1998 and $23.4 million
associated with the closure of approximately 100 residential retail stores in
the first quarter of 1998. Gross margin as a percentage of net sales increased
1.6 percent to 27.5 percent in the second quarter of 1998 compared to the second
quarter for 1997, primarily due to improved sales product mix and increases in
the efficiency relationships of volume and fixed costs for the domestic and
Australian wholesale manufacturing business.
Selling, general and administrative expenses for the second quarter of
1998 were $168.3 million, or 19.3 percent of net sales, compared to $184.1
million, or 19.8 percent of net sales, in the comparable period of 1997.
Interest expense, was $15.6 million for the second quarter of 1998 compared to
$15.3 million for the second quarter of 1997 as a result of slightly higher
borrowings.
For the second quarter ended July 4, 1998, the Company recorded
nonrecurring charges of $141.5 million ($98.2 million, net of tax benefit, or
$.81 per share on a basic and diluted basis) related to recording the loss on
sale of its residential retail operations, store closing costs and writedown of
certain assets which was completed in August 1998 as discussed in note 4 of
notes to condensed consolidated financial statements. Net income before
nonrecurring charges was $33.0 million, or $.27 per share. Net loss after
nonrecurring charges was $65.2 million, or $.54 per share, on a basic and
diluted basis. Net income was $25.1 million, or $.19 per share, for the second
quarter of 1997.
The effective income tax rate for the second quarter of 1998 before the
nonrecurring charges decreased to 40.6 percent compared to 41.4 percent for the
second quarter of 1997 due to more profitable Australian operations in 1998
which are taxed at a lower effective income tax rate.
Six Months Ended July 4, 1998 Compared to Six Months Ended June 28, 1997
Net sales increased $14.2 million, or .8 percent to $1,738.1 million in
the first six months of 1998. The increase was primarily attributable to
incremental net sales of $34.1 million related to the wholesale manufacturing
operations in both the domestic and Australian markets and incremental net sales
of $27.3 million related to the residential retail and commercial contract
business, offset by a decline of $47.2 million in net sales primarily related to
sale of the U.K. operations during the first quarter of 1998 and $42.8 million
associated with the closure of approximately 100 residential retail stores in
the first quarter of 1998. Gross margin as a percentage of net sales increased
1.0 percent to 26.4 percent in the first six months of 1998 compared to the
first six months of 1997, primarily due to improved product sales mix and
increases in the efficiency relationships of volume and fixed costs for the
domestic and international wholesale manufacturing business.
Selling general and administrative expenses for the first six months of
1998 were $336.4 million, or 19.4 percent of net sales, compared to $351.5
million, or 20.4 percent of net sales, in the comparable period of 1997.
Pre-opening expenses related to the retail operations totaled $.2 million for
the first six months of 1998 compared to $2.9 million for the first six months
of 1997. Interest expense, net increased to $1.1 million for the first six
months of 1998 from $29.1 million for the first six months of 1997 as a result
of higher borrowings.
Results for the first six months of 1998 included nonrecurring charges
of $141.5 million ($98.2 million net of tax benefit, or $.79 per share on a
basic and diluted basis) as discussed in note 4 of notes to condensed
consolidated financial statements. Net income before nonrecurring charges was
$52.5 million, or $.42 per share. Net loss was $45.7 million, or $.37 per share
on basic and diluted basis. Net income was $36.0 million, or $.27 per share, for
the first six months of 1997.
The effective income tax rate for the first six months of 1998 before
the nonrecurring charges decreased to 40.7 percent compared to 41.9 percent for
the first six months of 1997 due to more profitable foreign operations in 1998
which are taxed at a lower effective income tax rate.
11
<PAGE>
FOREIGN OPERATIONS
The Company's primary foreign operations are conducted through its
Australian subsidiaries, where the functional currency is Australian dollars.
Fluctuations in the value of foreign currencies create exposures which can
impact the Company's operating results. The Company may employ foreign currency
forward exchange contracts when, in the normal course of business, they are
determined to effectively manage and reduce such exposure. The Company does not
enter into foreign currency forward exchange contracts for speculative trading
purposes.
PART II - OTHER INFORMATION
ITEM ONE - LEGAL PROCEEDINGS
The Company is a party to several lawsuits incidental to its various
activities and incurred in the ordinary course of business. The Company believes
that it has meritorious claims and defenses in each case. After consultation
with counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims, when resolved, will have a
material adverse effect upon the Company.
From time to time, the Company is subject to claims and suits arising
in the course of its business. The Company is a defendant in certain litigation
alleging personal injury resulting from personal exposure to volatile organic
compounds found in carpet produced by the Company. The complaints seek
injunctive relief and unspecified money damages on all claims. The Company has
denied any liability. The Company believes that it has meritorious defenses and
that the litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
In June 1994, the Company and several other carpet manufacturers
received a grand jury subpoena from the Antitrust Division of the United States
Department of Justice relating to an investigation of the industry. In October,
1997, the Company received formal notification from the Department of Justice
that the investigation has been closed. In December 1995, the Company learned
that it was one of six carpet companies named as additional defendants in a
pending antitrust suit filed in the United States District Court in Rome,
Georgia. The amended complaint alleges price-fixing regarding certain types of
carpet products in violation of Section 1 of the Sherman Act. The amount of
damages sought is not specified. If any damages were to be awarded, they may be
trebled under the applicable statute. The Company has filed an answer to the
complaint that denies plaintiffs' allegations and sets forth several defenses.
In September 1997, the Court issued an order certifying a nationwide plaintiff
class of persons and entities who purchased "mass production" polypropylene
carpet directly from any of the defendants from June 1, 1991 through June 30,
1995, excluding, among others, any persons or entities whose only purchases were
from any of the Company's retail establishments. Discovery began in November
1997. The Company is also a party to two consolidated lawsuits pending in the
Superior Court of the State of California, City and County of San Francisco,
both of which were brought on behalf of a purported class of indirect purchasers
of carpet in the State of California and which seek damages for alleged
violations of California antitrust and fair competition laws. The Company
believes that it has meritorious defenses to plaintiffs' claims in the lawsuits
described in this paragraph and intends to defend these actions vigorously.
After consultation with counsel, it is the opinion of management that, although
there can be no assurance given, none of the claims described in this paragraph,
when resolved, will have a material adverse effect upon the Company.
The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous materials used
in its manufacturing processes. Failure by the Company to comply with present
and future regulations could subject it to future liabilities. In addition, such
regulations could require the Company to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations. The Company
is not involved in any material environmental proceedings.
At the end of the quarter ended July 4, 1998, there were no other
pending legal proceedings to which the Company was a party or to which any of
its property was subject which, in the opinion of management, were likely to
have a material adverse effect on the Company's business, financial condition or
results of operations.
ITEM TWO - CHANGES IN SECURITIES
None
ITEM THREE - DEFAULTS UPON SENIOR SECURITIES
None
12
<PAGE>
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 Annual Meeting of Shareholders of the Company was held on
April 30, 1998. The only matter submitted to a vote at the meeting was the
election of Class II directors for a three-year term. J. Hicks Laner, R. Julian
McCamy, Thomas G. Cousins and S. Tucker Grigg were elected as Class II
Directors, term expiring 2001. a total of 96,249,739 shares were voted for the
election of all nominees; 1,832,635 shares voted withheld authority for the
election of one or more directors.
The members of the Board of Directors whose terms of office continued
after the 1998 Annual Meeting of Shareholders are as follows: (i) J.C. Shaw,
Robert E. Shaw and Robert J. Lunn (Class I directors, term expiring 1999);
and (ii) W. Norris Little, William C. Lusk, Jr. and Robert R. Harlin (Class
III Directors, term expiring 2000).
The proxy or proxies designated by the Company will have discretionary
authority to vote on any matter properly presented by a shareholder for
consideration at the 1999 Annual Meeting of shareholders but not submitted for
inclusion in the proxy materials for such meeting unless notice of the matter is
received by the Company at its principal executive office not later than
February 17, 1999 and certain other conditions of the applicable rules of the
Securities and Exchange Commission are satisfied.
ITEM FIVE - OTHER INFORMATION
None
ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 - Financial Data Schedule
10.1 Agreement and Plan of Merger, dated June 23, 1998, among
The Maxim Group, Inc., CMAX Acquisition, Inc., the
Registrant and Shaw Carpet Showplace, Inc., and forms of
Subordinated Promissory Note and Shareholder's Agreement
attached as Exhibits B and C, respectively, [Incorporated
by reference to Exhibit 99.1 to the Registrant's Current
Report on Form 8-K filed on June 26, 1998 (Commission File
No. 1-6853).]
10.2 Share Transfer Agreement dated April 3, 1998 among the
Registrant, Shaw UK Holdings Limited and Carpet Holdings
Limited. [Incorporated by reference to Exhibit 99.1 to the
Registrant's Current Report on Form 8-K filed on April 20,
1998 (Commission File No. 1-6853).]
Shareholders may obtain copies of Exhibits without charge upon written
request to the Corporate Secretary, Shaw Industries, Inc., Mail drop 061-22,
P.O. Drawer 2128, Dalton, Georgia 30722-2128.
(B) 1.A report on Form 8-K was filed on April 20, 1998,
reporting the disposition of Carpets International, Plc
(the Company's wholly-owned U.K. subsidiary).
2.A report on Form 8-K was filed on June 26, 1998,
reporting the Company and Shaw Carpet Showplace, Inc., a
wholly-owned subsidiary, had entered into an agreement to
dispose of substantially all of residential retail
operations to The Maxim Group, Inc.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHAW INDUSTRIES, INC.
---------------------
(The Registrant)
DATE: August 17, 1998 s/ Robert E. Shaw
- ------------------------ -----------------
Robert E. Shaw
Chairman of the Board,
Chief Executive Officer
and President
DATE: August 17, 1998 /s/ Kenneth G. Jackson
- ------------------------ ----------------------
Kenneth G. Jackson
Vice President and Chief
Financial Officer
(Principal Financial Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS OF SHAW INDUSTRIES, INC. AND SUBSIDIARIES
AS OF JULY 4, 1998 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE SIX MONTHS ENDED JULY 4, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
NOTE: EARNINGS PER SHARE (E.P.S.) HAVE BEEN CALCULATED IN ACCORDANCE WITH FASB
128.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 8,557,000
<SECURITIES> 0
<RECEIVABLES> 397,870,000
<ALLOWANCES> 18,522,000
<INVENTORY> 555,734,000
<CURRENT-ASSETS> 1,082,836,000
<PP&E> 1,352,283,000
<DEPRECIATION> 761,755,000
<TOTAL-ASSETS> 1,842,911,000
<CURRENT-LIABILITIES> 371,648,000
<BONDS> 0
0
0
<COMMON> 147,027,000
<OTHER-SE> 579,962,000
<TOTAL-LIABILITY-AND-EQUITY> 1,842,911,000
<SALES> 1,738,134,000
<TOTAL-REVENUES> 1,738,134,000
<CGS> 1,279,081,000
<TOTAL-COSTS> 1,279,081,000
<OTHER-EXPENSES> 476,575,000
<LOSS-PROVISION> 5,056,000
<INTEREST-EXPENSE> 30,808,000
<INCOME-PRETAX> (53,386,000)
<INCOME-TAX> (7,408,000)
<INCOME-CONTINUING> (45,978,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,716,000)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
